Strong Yen Pushes Even Small Japanese Firms Abroad
Interest in investing in production facilities abroad has jumped by 32 percent this spring compared with the same period of last year, according to the Japan External Trade Organization based on the number of inquiries by private companies.
During the past year inquiries about investing in S. Korea jumped threefold, 2.7 times for Thailand and Malaysia and 1.5 times for Vietnam, JETO reported. Inquiries about investing abroad began increasing sharply around fiscal 2009 (which began April 2009) when the yen began its latest bout of appreciation against other currencies.
Firms specializing in helping Japanese businesses move abroad have enjoyed a spike in new clientele.
Tokyo-based Vietnam Challenge Corp. (VCC), is renting out space in a factory it set up in the Long Hau industrial complex on the outskirts of Ho Chi Minh City, reports Asahi Shimbun. About twenty Japanese firms have leases space at a cost of about 200,000 yen ($2,600) a month for about 500 square meters (5,000 square foot) of factory space.
“Industrial complexes that in the past sought large corporations have come to realize the high level of technology held by small businesses and have become more aggressive about attracting such companies,” said VCC representative Masayuki Saito.
Trading giant Sumitomo Corp. also began a rental plant project in the northeastern Hanoi this spring that contains 11 available spaces inside two buildings and will begin accepting applications for a second plant in mid-September.
The Tokyo Chamber of Commerce and Industry is launching a system in October to allow firms and organizations with international experience to help small businesses locate plants abroad and hire workers.
“With the business environment becoming increasingly severe due to the stronger yen and concerns about electricity supply, some companies are being forced to move overseas,” said Mitsumaru Kumagai Daiwa Institute ‘s chief economist. “The central government should come up with measures to provide support to such companies.”
The potential exodus of Japanese manufacturing capacity is starting to create concerns about the hollowing out of the nation’s industrial base. The United States has been plagued by similar concerns since manufacturers began shifting production abroad in the late 1960s.
The trend, which most economists agree is both inevitable and healthy, will accelerate as more developing nations like Vietnam, Indonesia and India are bringing online an educated labor force and a level of infrastructure that can handle manufacturing and assembly at a substantial cost advantage over developed nations like the U.S., Japan, Britain and Germany. In Japan’s case, declining birth rates are also adding to the pressure to take advantage of the growing labor force in developing nations.